Redstone FCU Sees New Pay Protection as `Win-Win'

HUNTSVILLE, Ala. - The managers of Redstone Federal Credit Union considered the ramifications of offering no-bounce check protection to its members, and it also considered the alternatives. "A lot of people live paycheck to paycheck, and if you're in a situation where you have to have something right then, it's good to be able to count on this kind of service from your credit union," says Joe Newberry, executive vice president of communications and lending at the $1.5 billion CU based in northern Alabama. Redstone served as a beta site for Harland Financial Solutions' new Privilege Pay solution and recently launched it after a year of policy and software writing and testing. Privilege Pay kicks in after other automatic overdraft sources, such as share accounts, are depleted, and it can be used to cover multiple payment channels, not just paper checks. The charge for each transaction using the bottom-line protection is $25, but merchant charges for bad checks, plus the embarrassment, can cost a whole lot more, Newberry says. "Wal-Mart, for instance, has a slick system where they can run the check through a second time on the same day and tack on another fee, at $30 to $40 a pop. That adds up pretty fast," Newberry says. "So, you tell me, isn't that helping the members when you're paying that item, especially after all their other sources of funding it have been exhausted? "We thought about this a lot, and we honestly don't believe that this encourages people to write bad checks. The vast majority of people are just trying to get by." Newberry expects the CU to show an ROI of about 60% in the first full year of the deployment, including consulting fees and software costs. "We're projecting a net of $600,000 to $700,000 a year," Newberry says, "but we know we're saving our members a lot more than that." The Privilege Pay solution requires Harland's FSP-Back Office system, but credit unions can use it for not only check clearing, but also bill pay, ATM/POS, debit, ACH and periodic payment transactions. Automated check-covering solutions are not unusual. "The difference is that ours supports all debit transactions, not just overdrawn checks," HFS spokeswoman Jan Wilgus says. While Redstone technically is covering just draws against checking accounts, Newberry points out that "in today's electronic world, you have debit transactions, ATM transactions, point-of-sale transactions, all these touch points and more, that come right back to the original checking account, so we're covering a lot here." In addition to working with HFS specialists, Redstone hired courtesy pay pioneers Strunk & Associates as its outside advisor. "We were very concerned about the whole process, including overall compliance issues and policies, so we went with an experienced consultant for that," Newberry says. When the time came, about 90,000 of Redstone's 235,000 members met the criteria - which include deposit amounts and level of activities, delinquency records "and a lot of other things" - and were notified that they were receiving the service, Newberry says. Deploying the solution presented some challenges at both ends. For Redstone, it was answering all the questions. "Our call center was inundated for the first month by members wanting to know why they had been charged. We researched each call and showed them that when the check was presented, they didn't have the funds and we paid it because they had been granted the privilege," Newberry says. The Strunk consultants had prepared them for that and response times have decreased, Newberry says. He also says that a few members said they didn't want the service and that, "if we had to pick something we learned here it's that while very few people would do it, we might have offered an opt-out." The complex deployment also offered a technical challenge at the back end. Pamela Harris, HFS product manager for Privilege Pay, says, "The overdraft process is quite standard . and was easily deployed to the ULTRADATA core processing system. However, we were challenged with the application of the fees due to the different levels of member flexibility available throughout each channel; for example, optionally charging a fee for each overdraft occurrence or charge a fee for each item paid." In the end, she says, "We were successful in maintaining all existing features among the various channels." HFS now is preparing to soon offer the service to its general CU client base. Newberry concludes, "Our president, Gerald Toland, is fond of saying, `If it's a winning situation for our members and our vendors, then it's a win-win for the credit union. And in the month or so we've been doing this, everything's been right down that line." -